The first three months of the Trump presidency have been politically tumultuous and divisive. Opinions on the work he has done so far, and the work he has planned for the future have been far-reaching, and are being debated everywhere from our newsrooms to our living rooms. It can be challenging sometimes, to cut through the noise and the rhetoric to get some clarity on the issues you are most concerned about.
At Vance Wealth Group, we are staying out of the game of political commentary, but we are committed to studying the markets and attaining a deep understanding of the impact of the governments leader’s decisions will have on the economy. Of course, it’s early. The first 100 days of any presidency are marked with swift change and unexpected turns, and this administration is certainly no exception. However, that doesn’t mean we are completely in the dark. By taking a careful look at what we know so far, there is a lot we can learn about the potential positive, negative, and neutral impacts the Trump presidency may have on the American economy and what that might mean for you.
Good momentum: As we approach the 10-year anniversary of the Recession of 2008, recovery metrics continue to look modest but consistent. The Trump administration will no doubt benefit from the bump in consumer confidence coming from a real GDP growth of about 2% for 2016, low gas prices, modest wage gains, and strong job growth. Investors are optimistic that a business-friendly Trump administration bodes well for growth overall. For now, the U.S. economy is in the third longest expansion and if no recession occurs before 2020, the U.S. will experience the longest recovery in history.
Changing tax policies: With a Republican President as well as a GOP-controlled House and Senate, movement towards a more conservative tax policy should be relatively easy for the administration. The Trump administration has expressed a desire to lower corporate taxes to 15%, allowing corporations to keep 85% of their profits, a 20% increase from the current rate. Corporate tax cuts could incentivize companies to bring jobs back to the US, and fiscal stimulus will likely accelerate growth…
Earnings growth: That lower effective tax rate should have a positive impact on boosting earnings across several industries. With promises to commit to infrastructure spending, the industrials market is poised to benefit here in particular.
Job market stagnation: Early moves made by the Trump administration suggest major changes to both legal and illegal immigration to the US. Fewer illegal immigrants could lead to labor shortages, particularly in the domestic services, construction, and agricultural industries. Reduced legal immigration has even more problematic implications. Retirement of Baby Boomers has been steadily decimating the working-age population in recent years, and will continue to do so throughout the Trump administration. Legal immigration does a great deal to offset this, and sharp limits on it will deepen the problem.
Ballooning national debt: A proposed $54 billion dollar increase in military spending (as well as possible extensive increases in infrastructure spending) certainly will not pay for themselves. Government debt is fast approaching 100% of GDP and with proposed deep tax cuts across the board, it’s hard to see that slowing or reversing under a Trump administration economic policy.
International trade uncertainty: The President has been vocal about his criticisms of existing trade agreements. Should he decide to pull out of NAFTA for instance, which he can do without congressional approval, the destabilizing effects would be far-reaching. Tariff increases, countermeasures against US exports, and disruptions to the supply-chain for US manufacturing needs all stand to be impacted negatively should substantial changes be made to existing agreements.
NEUTRAL, or too soon to tell
Infrastructure spending: We are keeping an eye on potential infrastructure spending and the implications it may hold. While the concept definitely has the potential for expanded US job growth, as of now it is unclear how such an undertaking would be funded. Increases in spending at this level will likely be challenging to get through the House, and without a clear way forward, Trump’s infrastructure plans may prove to merely be a pipe dream.
Central bank policy: The Federal Reserve continues to focus on the job market and inflation. While job growth was strong in 2016, it has been slow overall during the last several years. Officials continue to expect to raise interest rates modestly, but Fed Chair Janet Yellen has been careful not to make any promises, committing instead to observe how the economy evolves throughout the Trump administration, and responding accordingly.
This certainly isn’t the first time the United States has found itself with a controversial figure in its top office. While President Trump made a number of big and potentially far-reaching promises on the campaign trail, the reality of US Government operations tend to be slow moving, and it will undoubtedly take some time to see what all he may actually be able to accomplish. In the end, despite the controversy the administration is currently grappling with, we are betting on America to succeed whether it is because of, or in spite of, who is sitting in the Oval Office.
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